Simba Corporation — the owner of car dealer Simba Colt Motors — has hired international luxury hotel chain Kempinski to manage its new property in Kenya as it seeks to diversify from its mainstay new vehicle dealership.

It has 62 hotels globally, with additional 43 under development in Africa, Europe, the Middle East and Asia.

Kempinski has signed an agreement with Simba in which it will earn fees for its management services and strong reputation in the global hospitality sector, with Simba betting on these to help it grow market share in the hotel industry, according to an executive at Simba Colt.

“Kempinski Hotel President & CEO (Reto Wittwer) will be in Kenya to attend the handing over of the New Kempinski hotel in Nairobi, and a luxury camp in Mara by the developers of the properties Simbacorp,” said a statement from Kempinski.

Simba relies heavily on the new vehicle dealership market where it sells Mitsubishi commercial trucks and BMW luxury saloon cars.

Its entry into the hospitality sector is set to raise competition as Kenya continues to attract new major hotels.

The Swiss hotel chain will manage Simba’s 200-room five-star hotel located in Nairobi’s Westlands that will open its doors by the end of the year—which will be opened on June 12.

The hotel will feature a presidential suite on the 10th floor and three concept restaurants, including an all-day diner.

It will also have a bar and a cigar lounge, conference facilities targeting business travellers and a ballroom able to seat 500 people.

The brand will also manage Simba’s luxury-tented camp in the Maasai Mara, set to be opened on June 11.

Simba Corporation has also said it will develop a mixed-use property in Nairobi besides a three- star hotel as it deepens its footprint in the lucrative hospitality and real estate sectors.

The partnership with Simba marks Kempinski’s first venture into Kenya, with sources saying the firm is also interested in investing in its own property in the country.

Five years ago, it had announced it was looking to enter the local market, possibly through a buyout.

The firm’s expansion is set to heighten competition against established rivals like Hilton, InterContinental, and Sarova hotels.

The entry of Kempinski is set to raise competition in the country’s high-end hospitality market that has attracted more than five new major hotels in the past two years, a move that will also boost bed capacity.

Hemingways Collection, SAMCO Holdings, Rezidor Group of Hotels, and the Red Cross are some of the investors who are putting up property or expressed their intentions to set shop in Kenya in what would add at least 600 beds.

The new hotels, mainly based in Nairobi, are looking to cash in on the growth in tourism that has led to an increased demand for bed capacity in the city, mainly driven by conference and business.

Investors are targeting conference and business travellers as well as leisure tourists who come in through Nairobi on their way to other tourist destinations.

According to the 2012 Economic Survey, tourism earnings rose to Sh97.9 billion last year from Sh73.7 billion in 2010, with the number of bed-nights occupied increasing 5.3 per cent to seven million.

Driving into Kisumu town, opposite the Kisumu-Kakamega highway stands rows upon rows of high-rise flats and mansionettes and others are under construction.

This 10 kilometre stretch into the city is one of the view points of the lake side city which just three years ago was dominated by shrub land and isolated shanty homesteads.

But now, the town is experiencing a construction boom with property prices rising by more than 500 per cent in some areas and real estate agents and developers reaping massive returns.

Mr Habil Odhiambo, one of the directors of Kisumu Property Market Ltd, says Kisumu’s property boom is typical to the trend in major urban centres in the country.

“In 2008, half an acre plot in Nyamasaria about five kilometres from the city centre used to be sold at Sh100,000. Now the same piece of land goes for Sh700,000,” he said.

“In Kibos, about 10kms from the city centre, an acre cost Sh350,000 in 2008. The same piece of land now goes for Sh900,000.”

Areas further from the city centre which were empty shrub lands several years ago are now dotted with gated communities with most of the rental units being fully-booked even before completion.

The fresh injection of real-estate capital in the region has come as a blessing for the city’s growing population thirsting for affordable housing.

According to the 2012 Economic Survey, loans and advances towards the building and construction sector by commercial banks in the country increased by 55.8 per cent from Sh32.6 billion in 2010, to Sh50.8 billion in 2011.

The total value of private building works completed in the country increased from Sh38.3 billion in 2010 to Sh43.1 billion in 2011.

These are the billions of shillings being channelled towards houses in Kisumu as investors who had previously shied away from the lakeside region, perceived to be a preserve of Asian barons and lacking in infrastructure, warm up to the area.

Things are, however, beginning to change and as the region recovers from the effects of the 2007/2008 post-election chaos, things couldn’t be better for the property market.

The infrastructure development over the past few years has also meant increased confidence both for individual and institutional investors.

Major highways and feeder roads across the Nyanza region have undergone multi-billion upgrading and expansion, opening up the city.

The upgrading of Kisumu Airport has further seen property investors make a beeline into the lakeside city, in a move that has seen an unprecedented rise in the value of land and housing units.

However, the rapid urbanisation does not come as good news to everyone in the town.

The quest for more land to develop has led to a widening of the urban boundaries of the city with temporary houses that were the norm in peri-urban parts of Nyalenda and Manyatta going down and permanent houses and commercial units rising up in their place.

This has meant the displacement of poor families that have been living in these areas for more than three decades.

As a result, informal settlements have mushroomed around parts of Obunga, Manyatta and Nyalenda and the population of slum inhabitants keeps on increasing.

With increasing unemployment and poverty in slum areas, crime in most Kisumu city estates has become a new nightmare.

Residents and security officials point a finger of blame to unemployed slum youth who have become more daring and ruthless in their exploits.

The residents are now challenging the city planners to ensure that the fast rate of urbanisation keeps in mind pertinent issues like proper land use and does not alienate the urban poor.

Ms Nishma Sedani, the proprietor of the Lake Estate Agency, a new property firm in the city, says that one of the concepts that is maximising on land use is the apartment concept.

“The apartment concept that is common in Nairobi is gaining ground here in Kisumu and many people now understand that they do not have to be land owners to be home owners,” she says.

“Middle income earners with a steady income can purchase space above someone else’s house and have a home.”

This is evident from the number of apartment complexes currently under construction in various estates around Kisumu.

Home ownership

Translakes Limited, Kogelo Estates and Diana Apartments are some of the multi-million shilling apartment complexes being developed within Kisumu.

However, home ownership still remains far beyond the reach of many.

Many medium income earners are thus striving to look for various financing vehicles to realise their homeownership dream.

However, several stumbling blocks make the process cumbersome and nearly impossible.

According to Robert Bomet, mortgages manager at Kenya Commercial Bank, Kisumu, there has been an increase in application for construction loans.

“A lot of people are coming to us to obtain financing for building houses”.

“The problem, however, is that most of the people do not have security for the loans they are applying for. Most of the land around Kisumu is ancestral land and the owners do not have title deeds.

“What most land owners get when they buy the land are allotment letters which cannot be used as security. The municipal council should fast-track the exchange of allotment letters for title deeds to enable more people access credit.”

“The approval procedures for subdivision of land are still lengthy and complicated as there are too many statutes which control and regulate subdivision and change of use,” he said.

In addition to this, Mr Ireri said that the government needs to address the outdated planning standards for towns and cities to ensure growth in the sector.

“The key to effective land use planning requires robust institutional capacity and governance structures for speedy implementation and enforcement of approved plans, policies and strategies,” he said.

“Also, the transfer, documentation, processing fees and stamp duty rates are far beyond the reach of the majority of Kenyans.”

“We need to move away from the traditional settings. When you look at Nairobi, for example, people are now moving towards Thika, Limuru and Athi River,” said Mr Ireri.

“When you put up roads, sewers, and power lines then people can move out of urban centres and this will go a long way in addressing the current housing shortfall through opening up more land for development,” he said.

Modern roads and highways being constructed in Kenya, mainly by Chinese companies, have been praised as enabling the east African nation to improve its branding to attract investors and holiday makers.

Kenyan business leaders say the roads, especially the Thika Superhighway, a 50km ten-lane road linking the capital Nairobi to the industrial town of Thika has helped improve the country’s image.

“Previously when Kenyans travelled to countries like South Africa, they would marvel at the roads. Today, those types of roads are coming to Kenya and this gives our people pride,” said Chris Kirubi, a prominent Kenyan businessman with interests in manufacturing, real estate and financial services.

Kirubi was speaking on Friday in Nairobi during the launch of a new survey that ranks African countries based on the value of their brands. “If Kenya has to import, it has to import quality goods and services that meet the acceptable global consumer standards. Roads built by the Chinese for instance are of high quality and will help this country move ahead,” said Kirubi.

In addition to image building, the roads have made it easier to do business in the country by facilitating easy transport of people and goods. Thika Superhighway, the Eastern Bypass and Northern Bypass, are helping to decongest the capital city Nairobi and opening new areas for development.

The survey revealed that South Africa is the Most Valuable African Nation Brand in Africa, reinforcing the county’s image as one of the most favored destination for holiday makers and investors. The survey was conducted by South Africa-based Brand Africa in association with Brand Finance.

The top ten Most Valuable African Nation Brand for 2012 were named as South Africa, Egypt, Nigeria, Morocco, Algeria, Angola, Tunisia, Kenya, Ghana and Ethiopia, in that order.

Kenyan participants during the launch called on the country’s media to devote more energy to highlighting positive issues about the country rather than dwell on the negatives.

“Most of what is written by the local press is on the negative. It becomes very difficult to market Kenya as a good tourist destination when only 20 per cent of what is in the media is positive,” said Cecily Mbarire, the Assistant Minister for Tourism.

Participants called on Kenya government to increase the country’s marketing budget, especially to the ministries of tourism and the state corporation responsible for branding the country, Brand Kenya to enable the brand value of the country to improve.

“It is very easy for Kenya to increase its number of tourists from the current 1.8 million to 5 million in two years if we have adequate marketing budget,” said Mbarire.

Now in its second year, the Most Valuable African Nation Brands’ s list feature a new entrant on the list, Ethiopia, which replaces Libya on the tenth spot, with Ghana and Kenya swopping positions. Kenya moved one spot up from position 9 in 2011, to position 8 and Ghana moved one position lower to occupy position 9. The rest of the countries still remain in the same position as last year’s rankings.

“The Top 10 Most Valuable African Nations are without question among the most dynamic African nations at the forefront of re- inventing the Africa’s image, reputation and competitiveness,” Thebe Ikalafeng, Founder & Chairman, Brand Africa.

“More than half of the world’s fastest growing economies are from Africa, paving the way for Africa to transform itself from being a net importer of goods and services to being self- sufficient and a contributing rather just a consumer member of the global economy,” he added. (Xinhua)

Listed agricultural firm Sasini announced a 19 per cent drop in half year net profit and is eyeing the real estate market to reduce the influence of weather and volatile coffee prices on its earnings.

The company said its net profit for the six months to March stood at Sh160 million compared to Sh198.2 million in the similar half last year, but it maintained its interim dividend payment at Sh0.50 a share

The company attributed the drop to lower coffee prices, poor weather that cut tea output and rising operation costs led by labour and input expenses.

Now, it is seeking a piece of Kenya’s booming real estate market in a bid to diversify further from the agro based business—which generates more than 90 per cent of its sales.

Mr James Mcfee, the chairman of Sasini, said the company is eager to build homes in a 100 acre piece of land in Ruiru Township, which he added is not ideal for coffee production.

Volatile performance

“The board decided that developing the land is a worthwhile venture and we are only holding back until commercial bank’s interest rates are favourable enough for us to borrow funds,” said Mr Mcfee at an investor briefing in Nairobi Thursday.

Its performance has been as volatile as its core business of producing coffee. Its net profit more than doubled in 2010 to Sh352 million in a year when coffee prices were on the up, before it slowed down last year to 9.9 per cent on poor weather.

This forms the reason the company is widening its product range to include coffee lounges and sale of branded tea and coffee.

Premium returns

It signalled its intention to enter real estate in September when the Municipal Council of Ruiru granted its approval to change the use of nearly 1, 000 acres of land that is now under coffee.

Its quest for the property market is set to transform Ruiru Township which has been the focus of high net worth investors like Renaissance Capital, the Moscow-based investment bank and the Kenyatta family. Both the Kenyatta family and Renaissance Capital, through their project dubbed Tatu City, are planning to construct a new city of manicured homes, office blocks, shopping malls and industrial parks.

Rising rent and home prices, which is riding on nearly three decades of under investment, has seen real estate emerge as an asset class of premium returns relative to equities, bonds and bank deposits.

This is what is egging companies like Sasini, insurance companies, pension schemes and investment firms such as Centum to enter the regional property market.

At the Kenya coast in Watamu, a few metres from the Darakazi beach, sits a Scottish castle dating back hundreds of years.

The little known treasure was apparently built by a Scottish man who very little is known about.

The Watamu castle, as it is known, stands tall on a hill. It is a magnificent building that has maintained its original state so many years down the line.

From afar one easily spots the Scottish flag hoisted on a tower at one end of the castle. The middle part flies another flag, this time a Kenyan one perhaps retaining both the heritage of the owner and the country that adopted him.

The castle has an expansive roof terrace providing a clear view of the ocean.

The Watamu castle, built on one and a quarter acre piece of land, is one of the most sought-after venues today. This is because it has been turned into a holiday home costing Sh20,000 per night.

The location of the castle is perfect. It borders the Arabuko Sokoke forest and is a walk away from the ocean.

Watamu castle has three floors, the ground floor hosts the dining area, kitchen and two guest rooms, first floor is used as a lounge with two other ensuite bedrooms ideal for a family, while the top floors contain more bedrooms.

In total, the house has six-bed rooms and expansive terraces with a balcony facing the beach.

As expected of high-end real estate development, the castle has a swimming pool with a bridge leading into the castle.

However, the enchanting, manicured gardens of the Watamu house cannot match Lord Egerton’s castle in size.

Lord Egerton castle, built by Lord Maurice Egerton of Tatton in Njoro in the late 1930s is an enormous building with 52 rooms.

The Lord’s name and motto has forever remained engraved in the institution he helped set to date. He was a noble man who, during his life, donated 1,000 acres of his land to be used to build an agricultural institute for the settlers’ children.

“It is this school that grew into Egerton Agricultural College and eventually Egerton University. Later, he bequeathed an additional 3,000 acres of his Ngongogeri Farm to the College. He was an extremely generous, philanthropist and in many ways an exemplary man. He had established a reciprocally humane relationship with his workers whom he treated with care,” stated Professor Emilia Ilieva, associate professor in Literature at Egerton University and Chair of the Standing Committee on the Lord Egerton Castle Museum.

“After Lord Egerton’s death, the castle fell into the hands of a succession of users, none of whom seem to have appreciated its value or to have assumed responsibility for its preservation. It was thus gradually falling into a state of disrepair,” she says.

After the university attained its status as a university in 1987, it sought to preserve the estate of its founding father by reclaiming the dilapidated castle.

“In September 2001, the Lord Egerton Castle was handed over to the university together with 20 acres of the adjoining land. Unfortunately, it had suffered neglect and vandalism. Luckily, it was in a fairly good condition externally,” she explains.

Plans are already underway to transform the castle into a museum with the help of relevant government ministry and parastatals.

The museum will contain a library with books on colonial settlers, a permanent photographic exhibition on the life of the Lord among other artefacts.

Died in solitude

The university is also calling in citizens to bring back some of the items that belonged to the castle. According to Prof Ilieva, a mattress, bed, and Bible are some of the items they have so far recovered.

The castle, which took 16 years to be completed, was built for the Lord’s fiancée who had first turned down his proposal for marriage claiming she did not like the house Egerton was staying in. She termed the six-bedroom house a bird’s nest.

Challenged, the Lord decided to build the castle which she also dismissed calling it a museum.

The heartbroken Lord retired for five years of solitude in the castle, dying there in 1958. During his lifetime, he never allowed chickens, women, or dogs to enter his castle.

Another castle owner, Ewart Grogan, on the other hand, lived a happy life. He was a maverick who travelled widely and bought many parcels of land in Kenya.

Grogan road, now River road was once his part of his estate. To express his love for life and perhaps to satisfy his material desires, Grogan opted to build a castle on top of a hill overlooking the Taita Taveta plains.

Much has been written about him, especially his Moorish castle as he would once describe it in a letter to his friend.

Basil Criticos, a former MP for Taveta, is the current owner of the white castle which sits sandwiched in his expansive land on Jipe Hills.

In England, where Lord Egerton had built another castle before coming to Kenya, most of the castles have been turned into museums or fun spots.

He had an almost a similar castle in Cheshire, where he once hosted the royal family. Such were the purposes of castles in England.

However, the love for unique Victorian house designs has not eluded indigenous Kenyans. The Brookehouse International school last year completed a building which is designed like a castle.

The building’s lintels resemble a Kings crown while the roof is cone-shaped and elevated with a draw bridge.

It was designed by a local architectural and interior design firm.

According to Prof Chris Wanjala who spent most of his time researching on the Egerton castle, institutions are opting for the Victorian design to give it a homely feel.

As you ponder on this marvellous piece of art, make a point to one day visit the house on James Gichuru road that is also designed like a castle.

Like the others, it too was built by a settler. However, its ownership has since changed twice. The Ministry of Immigration department of refugees is the current occupant. They have rented the building but are looking forward hoping to buy it one day.

As I walk around the rooms, I remark about how cold it is.
“Yes. We need the chill because our work is hot, It cools as off,” says Badu Katelo the immigration commissioner laughing.

It is a magnificent work of art with stair cases leading to the pool area that is no longer in use. Inside the castle, some rooms have remained unchanged.

Although the immigration department have used many of the rooms by turning them into offices, there are still many others that remain untouched.

One thing Badu is happy about is the fact that they have saved the heritage of the building that was almost being turned into a hotel for lack of occupants.

Urbanis Africa, a consortium of Kenyan and Swedish real estate investors, is planning to construct a Sh6 billion housing project in Athi River expected to accommodate 7,000 people.

Transaction advisors for the project, AIB, said the estate will be financed through a mix of debt and equity.

Paul Mwai, the chief executive of AIB said Sh1.6 billion will be sourced from banks, Urbanis shareholders will contribute Sh90 million while Sh3.8 billion will be raised from the sale of completed house units.

“When people buy the houses you get the money and move to the next phase,” said Mr Mwai. The estate, with 2,500 units, will sit on 237 acres of land.

Mr Mwai described Urbanis as a “consortium of Kenyan and Swedish investors.” A school, shopping mall and an office park are to be included in the project, which is scheduled to begin by the end of the year.

The estate to be known as Kenani is targeting the mid and the low end of the middle class segment.

The starting price for the houses is in the Sh1.5 million range and is capped to Sh7 million.

Serving this market is Urbanis’ forte having previously worked with Jamii Bora Makao, the real estate of micro financier Jamii Bora, which targets the low end of the market.

Property developers said that houses at this price ranges are not readily available in the market despite the huge demand which if unlocked can offer massive gains for investors.

Mr Moses Wekesa, the chief executive of Grade East Africa, a property development firm, said that the low end of the market offers the biggest potential but is least exploited especially by mortgage firms.

“This is the biggest frontier for development that has not yet been cracked,” said Mr Wekesa.

The main problem in this market, he said, has been availability pairing with affordability, and land prices appreciating in inhibited strides makes the situation worse.

The direction of interest rates has also not acted in favour of the mortgage sector which has a 16,000 housing unit stock.

This follows Central Bank of Kenya increasing interest rates to 18 per cent from six per cent as a means of taming inflation in the last quarter of 2011.

There is a backlog of three million units specifically for the middle and lower income segment since the market can only churn out 30,000 to 40,000 units, yet demand is at 240,000 units said Mr Wekesa.

The developers of Kenani Estate have a goal to construct a large housing estate that is reminiscent of the Nairobi of the 70s.

“What I can describe it is another Buru Buru,” said Africa Investment Bank. Lower middle income earners will have 1,200 units priced at between Sh1.5 million and Sh2.5 million while the mid-middle income segment will have 1,000 units priced at between Sh3 million and Sh7 million.

The Kenya Railways Corporation (KR) is seeking a larger share of Kenya’s real estate market with plans to build shopping malls, hotels and office blocks in Nairobi and Kisumu.

The company has now invited consultants to map out how development on its Syokimau (13 acres) and Kisumu (16 acres) sites will look like. Work on the projects will begin next year.

The rail company has more than 350 acres of idle land surrounding its railway stations and has been scouting for investors to develop it with leasing out the land being its preferred investment route.

“We intend to construct facilities that are going to complement the railway line once it is fully operational,” said Nduva Muli, the firm’s chief executive officer.

The Sh16 billion railway project is envisioned to link all the key sections of the city through a railway network that converges in Nairobi’s central business district (CBD).

This is expected to attract investments with the rail firm keen on benefiting from the expected higher human activity along the railway routes.

The parastatal’s real estate projects come at a time when a property boom in the country has caused home and office block prices to rise 3.5 times in the past decade — a return that has caught the attention of both local and foreign investors. Rapid urbanisation, population growth and expansion of the middle class have emerged as drivers of Kenya’s property market, which is riding on nearly three decades of under-investment.

Tracts of idle land

The large tracts of idle land and the need to grow its profits has made the parastatal to increasingly become keen on diversifying its ventures away from railway – a core business that has not enjoyed much success to date.

KR has in the past signed joint venture partnerships where other than providing the land for development, it also offers part financing for some of its infrastructure projects.

One such partnership is The Smart Cities, also expected to begin next year, in which the rail company intends to build residential accommodation, hotels, light industries, shopping malls and recreation facilities in Mombasa, Kisumu and Nairobi. About 385 acres of land are needed for this project that will see investors foot up to 85 per cent of the capital required.

In June last year, Kenya Railways signed an agreement with the National Housing Corporation that required the rail firm to open its land for construction of homes in towns.

The deal was to see a prime land owned by the rail firm in the upmarket Kileleshwa suburb be used to construct apartments which are to be sold at Sh8 million each compared to market rates of over Sh10 million.

KR however says that it is waiting for a feasibility study to be completed before choosing which route to pursue in its latest project.

“Once the master planning and feasibility studies are complete and the cost of the entire project is determined, we shall decide on the appropriate funding option to adopt,” said Mr Muli.

Interest rates are the cost that consumers bear for using borrowed money to buy things. The higher the rate, the more the money the borrower must pay back to the lender.

People take mortgages to buy houses or homes and then pay back within a specified period of time.

The good thing for the lender is that a mortgage or a home-loan is often more secure because the borrower uses the property purchased as collateral to guarantee repayment of the loan.

This happens when the borrower gives the lender a lien against the property giving the financier the authority to foreclose (terminate the repayment contract) if the borrower does not repay as agreed.

Generally, when interest rates are lower, people are more likely to borrow money, as doing so costs them less. Conversely, when interest rates are high, credit becomes more expensive making many consumers to shy away from loans.

In the more recent past, Kenya has seen increased rural-urban migration drive growth in demand for both residential and commercial property in major cities.

And in Nairobi, for instance, the improvement of road infrastructure and construction of bypasses are increasingly opening up the construction industry, creating more opportunities in satellite towns such as Limuru, Thika, Mlolongo, Kiambu, Ruiru and Lang’ata.

The government is also developing an ICT city in Konza, on a 5,000 acre piece of land that is expected to come with research centres, universities, hotel facilities and social and technology centres among others — making an attractive offer that should help drive the construction industry growth in the long term.

The proposed Lamu development corridor — that includes port, railway, road and pipeline to Ethiopia and South Sudan — is another project that should help boost the property market growth.

The increasing participation of commercial banks in the mortgage market since 2004 following the sudden and steep decline in government borrowing from the domestic market and accompanying drop in interest rates to lows of between 12 per cent and 15 per cent has highly boosted demand for housing. This has also contributed to the growth of the property market.

More recently, however, a number of factors have led to a rise in the rates with far-reaching consequences on the property market.

Inflation rose rapidly in the last quarter of 2011 to 19.7 per cent in November, up from 5.4 per cent in January even as the shilling plummeted to historic lows of 107 to the dollar.

Between late July and early December 2011, the Central Bank of Kenya’s (CBK) Monetary Policy Committee raised the Central Bank rate from 6.25 per cent to 18 per cent, and commercial bank raised their rates in response.

This 12 per cent increase made it more expensive for commercial banks to access borrowing from the CBK and led to an increase in interest rates on financial products offered by the banks.

As anticipated, the high rates have hit the property market, causing a slowdown in mortgage sales from its very low base. The CBK data indicates that only eight per cent of Kenyans can afford mortgage.

This has turned the dream of owning a home into a mirage for most of the population despite the projection that Kenya’s population will hit 60 million by 2030 and more than 50 per cent of them will be living in urban areas.

These numbers only point to one thing; that demand for new housing can only go in one direction — up.

Besides, the challenge of interest rates can be partly overcome through proper insight into the home loans market where cost of credit range between 19 per cent and 28 per.

Research by the Mortgage Company has found that I&M Bank is currently the cheapest mortgage provider at 19 per cent while Bank of Africa is on the top end with 28 per cent.

Scant information on the best mortgage rates has discouraged many potential buyers are now keeping an eye on different mortgage offers and changing interest rates so as to make an informed decision.

Despite the high rates, the prospects for mortgage sales in the long-term appears promising.

Hope that the rates can drop soon remains alive, mainly driven by falling inflation rate and competition among the banks for customer —especially with the entry of SME financiers into the retail market.

Co-operative Saccos are giving banks a run for their money and chama (group)accounts are opening everywhere.

With this kind of competition, we anticipate that interest rates will drop in the stimulating growth in mortgage sales. If the rates would drop to a single digit level, more people would afford to borrow.

This should be possible if banks put more focus on the volumes to get more business whereby they would drop the rates so as to attract more borrowers.

While it is true that the rise in interest rates has slowed down mortgage sales it is anticipated that this scenario will not hold for long and probably sometime early next year after the elections the market will be back on track.

Houses worth over Sh46 billion were completed last year, representing a 22 per cent growth for the sector, which was beset by a sharp increase in costs of building materials and bank lending rates.

The housing sector was driven mainly by a rush among private developers to plug the widening deficit of formal settlements against a growing demand.

“Demand for housing coupled with availability of credit from commercial banks and mortgage institutions provided the necessary support to the industry,” said the Kenya National Bureau of Statistics in the 2012 Economic Survey released on Tuesday.

Over 94 per cent of the completed buildings were developed by investors in the private sector, showing the diminishing role played by the State in the supply of new housing.

State-owned buildings worth Sh2.6 billion were completed in the year, nearly a three-fold increase over the Sh1 billion-worth done in 2010, as the government increased its allocation to the development of housing for civil servants.

The growth in the sector was, however, much slower compared to the over 100 per cent jump reported previously when the value of completed buildings rose from Sh17.5 billion to Sh37.7 billion.

The findings confirm earlier projections from several real estate experts who estimated a slower growth owing to the effect of high volatility in commodity prices and a sharp increase in lending rates.

Samuel Rono, the property portfolio manager at Regent Management— a real estate firm, attributed the slowdown in development to the high interest rates environment, which discouraged both borrowers and developers from accessing credit from banks.

“The high interest rates have discouraged borrowing, we expect a further slowing down this year,” said Mr Rono, adding that some of his clients had suspended building due to the high cost of funds.

Executives at KCB and Housing Finance—the leading mortgage loan providers—have said that the credit appetite from the private sector has been ‘significantly dampened’ since the second half of last year, when the cost of capital shot up by about 10 per cent.

HassConsult, another real estate firm that manages residential estates in the top end segment projected in its quarterly report released last month that activity in the housing market had shrunk. The firm also reported a near disappearance of mortgage buyers from the market, meaning less inflow for developers especially in the middle income sector where most buyers would rely on loans.

Centum Investment will invite high net-worth investors to put their money into a Sh30 billion property fund as the firm angles for a larger share of eastern Africa’s real estate market and tries to cut its reliance on the volatile equities market.

The listed company says it has injected Sh3.6 billion and plans to add Sh3 billion to its real estate unit over the next three years as well as tap Sh30 billion from insurance companies, pension schemes and foreign investors for construction.

Part of the money will also be raised from debt and earlier Centum said its seeking foreign currency loan equivalent to Sh6 billion.

The investment firm is seeking to remodel itself into a private equity fund where it raised funds from high net worth investors instead of depending wholly on retained earnings and bank borrowings to close deals.

Mr Mworia says the Centum will deploy this model on its real estate division and will spread to its private equity and quoted equity units.

Centum is expected to start the first phase of a real estate project comprising offices, residential apartments, hotels, shopping malls and recreational facilities on a 100-acre piece of land in Runda. The developments will include a 255-bed hotel and 544 homes.

The company has also acquired a 300-acre piece of land in Uganda where it intends to roll out a similar plan to grow its assets outside Kenya from the current 18 per cent to 50 per cent by 2014.

Shifting focus

The firm is shifting its focus to the region’s lucrative property market with an eye on rising rental income and reducing the influence of stock market cycles and dividend payouts on its earnings.

Under the property fund, investors can exit through selling their shares to third parties who will earn a return from sale of properties and rental income.

But the exit mode will be made easier by plans to list property at NSE through Real Estate Investment Trusts (REITS) — which use investors’ pooled capital to buy and manage income property as well as allow for the trading of shares in property at the exchange.

The Capital Markets Authority is developing regulations to allow the setting up of REITs.

Centum will join British-American Investments Company (BAIC) and Stanbic Investments in seeking funds from third parties for their real estate projects.

The property market, which has seen home prices and rents double over the past five years, is emerging as favoured investment vehicle compared to the equities and the bonds market.

Swelling incomes and large numbers of young people moving to urban centres and starting families, are seen as yet the other key drivers of demand across all asset classes.

This is what is driving the likes of Centum Investment to spend billions of shillings in East Africa’s real estate market.

The firm’s net profit dropped to Sh793 million in the six months to September compared to Sh836 due to the bearish run at the Nairobi bourse.